UK: CFOs Focussed On Brexit Risks

The latest Deloitte survey of UK Chief Financial Officers,
released this morning, reveals that three months on from the EU
referendum Brexit risks continue to loom large for the UK's
largest corporates.

The period since the previous CFO Survey, carried out in the
immediate aftermath of the referendum vote, has seen Mrs May's
appointment as Conservative Party leader, a strong rally in equity
markets and a run of solid UK and global economic data.

Yet despite some improvement CFOs continue to see significant
risks in the economic environment and perceptions of uncertainty
remain elevated.

Levels of concern about macro risk has risen across five of the
six areas where we regularly poll CFOs. Brexit tops the risk list
while concerns about UK growth and competitiveness have soared in
the last six months. The one category of risk where concerns have
declined, albeit marginally, is emerging markets and
geopolitics.

Brexit concerns are weighing on corporate risk appetite, with
18% of CFOs saying that now is a good time to take risk onto their
balance sheet, up from a seven year low of 8% immediately after the
referendum. CFOs expect their investment spending and hiring to be
weaker over the next three years as a result of Brexit. And most
expect spending in these areas to decline over the next 12
months.

This caution is reflected in the way in which corporates plan to
run their balance sheets with cost reduction and building up cash
ranking as the top two priorities.

Views on the long-term effects of Brexit remain largely
unchanged from three months ago. Roughly two-thirds of CFOs think
Brexit will lead to a deterioration in the business environment in
the UK while one-third believe it will have no effect or will
improve the business environment.

The CFO Survey paints a more downbeat picture of the UK economy
than much of the other recent data. The Purchasing Managers
surveys, for instance, have shown a marked, and stronger than
expected, bounce in activity in construction, manufacturing and
services since the referendum. But the data have not been uniformly
strong and last week's sell-off in sterling against the dollar
testifies to market anxieties about the eventual Brexit
settlement.

Three months on from the UK referendum the allocators of capital
in the UK's largest business remain cautious and focussed on
the risks generated by Brexit.

To read the full report and download our dataset please click on
the link below -

PS - Last week's Conservative Party conference provided
evidence of what last week's Monday Briefing called the
"quiet return of Mr Keynes" – the shift, by Western
governments, from relying on monetary policy to boost growth to
using Keynsian-style fiscal policies. In her closing address to the
conference the Prime Minister cast doubt on the benefits of
monetary easing which, she said, had had, "some bad
effects". The Chancellor, Phillip Hammond, has abandoned his
predecessor's target for eliminating the public sector deficit
by 2020 and said that there is a case for some extra spending on
public sector infrastructure. In the Autumn Statement, on 23rd
November, Mr Hammond will map out his vision for public spending. A
big splurge in spending is not on the cards, but more public
borrowing to finance infrastructure and housing investment seems
quite likely.

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